Wednesday, October 31, 2012

"Romney would be a backward step"

Which of the candidates seems to recognise these issues in a sensible way? My view is that Mr Obama’s vision is inadequate. But Mitt Romney is George W. Bush reheated.

Mr Obama does not offer a sweep of reforms, which might reignite the dynamism that lifted most boats in the mid-20th century. Probably, that is just too hard. But, as the Tax Policy Center argues , it is impossible to look at Mr Romney’s proposals – reductions in marginal income tax rates offset by unspecified reductions in tax expenditures – without concluding that they “would provide large tax cuts to high-income households, and increase the tax burdens on middle- and lower-income taxpayers”.

In an economy with surging inequality, this would make the underlying problem worse.

Given Mr Romney’s commitment to large increases in defence spending, the outcome would surely be a large rise in structural fiscal deficits. Republicans have proved much less hostile to deficits in practice than in theory. Tax cuts are their true fiscal religion. The good side of this is that the US will need those deficits, for some time. The bad side is that such policies are more likely to generate a brief expansion than solid growth.

Republicans believe that the key to performance is less regulation and lower tax rates. Yet a shift from rates of 35 per cent to ones of 28 per cent is unlikely to have a noticeable effect on aggregate performance. Yes, taxes matter. But the view that they determine economic performance on their own is certainly wrong.

The issues go far beyond economics. Divides over social and foreign policies are self-evidently profound. But the economic choices are also important. Americans have a choice between a man with modest ambitions and someone determined to double up on the fiscal and financial policies of the pre-crisis era. Mr Romney, like the Bourbons, has learnt nothing and forgotten nothing. What would be the consequences of such a repetition? The world may be about to find out.